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GRAND RAPIDS — The agreement that might have allowed SofTech to return to the good graces of the Nasdaq stock exchange fell through. SofTech Inc. (SOFTC), a provider of 2- and 3-D computer-aided design and manufacturing products and related services intended to sell its Computer Aided Manufacturing (CAM) business to an undisclosed third party. The deal was recently terminated due to the inability of the third party to get the financing required to close on the business during the period of exclusivity.

With the now defunct sale of the CAM operation SofTech had hoped to restructure the company, thereby reducing its quarterly fixed cash expenses and generating positive cash flow, enough to eventually meet the requirements to return to the Nasdaq trading arena.

However, SofTech’s decision to sell the operating unit has not changed — it is only delayed. The company expects the sale may take several months and has been contacted by numerous parties expressing interest. With these opportunities on the table, the company feels it is in a position to look at those that will maximize shareholder value.

Last month the company received the determination of the Nasdaq Listing Qualifications Panel from a hearing held in January with regard to its listing on the Nasdaq National Market System. The Panel granted the company its temporary request to continue to be listed on the Nasdaq SmallCap Market via an exception from the $1 minimum bid price requirement.

In order to maintain a continued listing on the SmallCap Market, a company must meet certain market requirements.

These include having $2 million in net tangible assets, $35 million in market capitalization or $500,000 net income in the latest fiscal year or two of three last fiscal years.

The firm's common stock must have at least 500,000 shares held by persons other than officers and directors and beneficial holders of more than 10 percent of the company’s common stock. The company also is required to have an aggregate market value of public float of at least $1 million, a minimum bid price of $1, be held by at least 300 people who hold at least 100 shares, and, finally, have at least two market-makers.

While SofTech failed to meet the requirements as of Sept. 13 and has failed to correct for this deficiency to date, the company was granted a temporary exception from this standard subject to meeting certain conditions. These include, but are not limited to, successful and timely completion of an application for listing on the SmallCap Market.

The exception from this listing expired April 2.

The company also announced that based on preliminary results for its third quarter ended Feb. 28, 2001, revenue was between $2.5 and $2.8 million and that loss for the quarter was between $1.5 and $2.0 million. This revenue was well below the levels expected.

“Our inability to complete the sale of the CAM business before the end of the third quarter together with the expected loss will result in an additional Nasdaq SmallCap listing deficiency when the Form 10-Q is filed on or about April 16, 2001,” said Joe Mullaney, vice president and CFO, in a prepared statement at the end of March. “We expect to report tangible net assets of less than the $2 million required to maintain our listing on this market.”

At the time of the statement SofTech had puts its earlier plans for a reverse split, a process used to exchange a number of old stock for a number of new stock, on hold while waiting for a determination from the Nasdaq to see whether the market would allow the company additional time to comply with other requirements.

On April 5 the determination came through — Nasdaq announced that SofTech’s request for an additional 120 days of contingent listing in order to allow for the completion of the sale had been denied.

In accordance Nasdaq decided to de-list the company’s securities from the Nasdaq Stock Market as of April 6. Furthermore, the company’s securities are to be listed under the Over the Counter Bulletin Board immediately.

After receiving the determination Mullaney commented, “as we announced previously, we must focus all of our attention improving our operations at this time. With the cost reductions we are putting in place, the expected ramp-up of revenue from new products and a renewed focus on the needs of our installed base, we expect to begin to show improved financial performance this quarter and positive cash flow in Q1 2002.”

The reductions Mullaney spoke of include big news for the Grand Rapids office. While SofTech waits for the sale of the CAM business, it will begin restructuring the company in order to prepare. This will begin with focusing operations around one central location in Massachusetts.

As a result the company is now looking for subtenants for the Grand Rapids and Indianapolis offices and staff reductions have already been internally announced. The goal is to reduce quarterly fixed cash expenses to approximately $2 million after the sale of the CAM business.

SofTech believes this goal can be achieved for the first quarter of fiscal 2002, which begins June 1, 2001. It also believes this level of expenditure will allow the company to develop its DesignGateway technology, enhance its Cadra technology and market the MICROCADAM migration strategy throughout the North American, European and Japanese marketplaces.

With these changes and modifications, Mullaney and SofTech are confident a higher level of success can be attained. Mullaney commented, “We believe we have unique technology that can help our customers improve efficiency thereby reducing cost and shortening product development time. Greenleaf Capital, as lender and largest shareholder, has expressed its full support of our business plan.”

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